Russin Central Bank Raises Rate to 10.5%

Russia’s central bank has raised its key interest rate by one percentage point to 10.5% as it steps up the fight to tackle inflation.

It comes just six weeks after it raised the rate to 9.5% from 8%.

The bank’s official website added that it would continue raising the rate “in case of further aggravation of inflation risks”.

In its monthly economic update the Bank of Russia also said that, as of 8 December, annual inflation was 9.4%.

A weak rouble and a ban on western food imports has kept inflation high.

“The hope is that [interest rate rises] will cut consumption and stop prices rising so fast,” said the BBC’s Moscow correspondent Steven Rosenberg.”

But there’s a downside to that; raising interest rates slows economic growth – and that’s not good, with Russia on the brink of recession.

“As for the rouble, it has continued to slide and has fallen to a new low against the dollar.”

The rouble hit new lows after the rates decision, and was trading at 55.45 against the dollar and 68.98 against the euro not long after the bank’s announcement.

The rate hike comes a day after the bank admitted it had intervened to support the rouble in foreign currency markets last week, spending a total of $4.53bn (£2.9bn).

It has spent more than $70bn supporting the rouble since the start of the year.

The Bank of Russia also said on Thursday that GDP growth would be weak during 2015-16, as consumer activity weakened.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza